Address your financial past, present and future.
By Ann Brenoff
Are you ready to kick off 2018 with a better financial you? Do you want to set aside your spending ways and educate yourself on money matters, once and for all?
We rounded up some financial advisers, accountants and bankers ― and sprinkled their advice with some plain old common sense and a touch of online expertise ― to bring you these six ways to improve your finances. Some result in immediate savings, while others are things you can do now to secure benefits in the future. All can be crucial to your overall financial plan.
1. Get over being afraid of the stock market.
The stockbroker your parents used for years may be a great guy, and perhaps even a family friend who danced at your wedding. But is he necessarily the right broker for you? Learning how to invest your money is an important skill, and your fear may be based simply on the idea that you don’t know how any of this investing stuff works. The thought of just handing over a chunk of your hard-earned money with no guarantee of it growing is understandably terrifying.
The way around this is education. A broker is the intermediary between you and the investing world. You pay a fee for the broker’s advice and access to his knowledge and recommendations.
But you still should educate yourself. And, why yes, there are apps for that. As NerdWallet notes, “When you’re a beginner investor, the right brokerage account can be so much more than simply a platform for placing trades. It can help you build a solid investing foundation — functioning as a teacher, advisor and investment analyst — and serve as a lifelong portfolio co-pilot as your skills and strategy mature.”
NerdWallet rated the best online brokers for beginning investors and gave the highest marks to Merrill Edge. An offshoot of Merrill Lynch, Merrill Edge doesn’t require an minimum investment, charges $6.95 per trade and offers cash promotions. Users like the customer service and schooling they receive, and noted the “robust” nature of the company’s research.
2. If you drive a clunker, don’t insure it like a Tesla. And if you’re married, don’t insure your car like someone who’s single.
Car insurance in some states ― yeah, California, we’re looking at you ― is a bill that can rival your mortgage.
If you’re driving an older car, paying for physical damage coverage (commonly called collision insurance) when you don’t have to may be a waste of money. For example, assume your car’s current value is $1,000, the same as your current deductible. If your car is stolen, the insurance company will reimburse you for the value of the car, minus your deductible ― in other words, nothing. In an accident, you’ll be responsible for all repairs up to $1,000, and the insurance company will reimburse you for any repairs over $1,000, up to the value of the car ― again, nothing. By dropping your physical damage coverage, you can save some money on premiums, advises the American Institute of CPAs’ 360 Financial Literacy Program. Run the numbers yourself, or get help from an agent. Just remember that you are still legally liable for any damages you cause.
While no one gets married just to lower their car insurance rates, tying the knot does make you and your spouse less-risky drivers than single people in the eyes of your insurance company. Your insurer will lower your premiums, but first you need to report it to them, the program notes.
When you reach age 25, you also hit a milestone in the eyes of most auto insurers and step into a new, slightly lower risk category. Everything else being equal, that means a lower rate. If you don’t notice a difference, call your agent and ask what’s up.
3. Make use of Health Savings Accounts.
Enrolling in a tax-advantaged health savings accounts, either through an employer or directly, can play a pivotal role in helping you manage health care expenses both today and in the future, said Cyndi Hutchins, director of financial gerontology at Merrill Lynch.
“According to our 2017 Workplace Benefits Report Healthcare Supplement, 79 percent of employees indicate they’ve experienced a rise in health care costs last year and just 11 percent felt that they knew where to figure out how to cover health care costs in retirement,” she told HuffPost.
An HSA is a medical savings account available to taxpayers in the United States who are enrolled in a high-deductible health plan. The money that you contribute to such an account is not taxed. And in addition to tax-deductible contributions and withdrawals, an HSA offers the ability to invest, and potential to grow financial contributions tax-free over time. Unlike other “use it or lose It” vehicles, HSAs are portable and controllable ― meaning they can be used to fund qualified medical expenses and health-care costs not just today, but in retirement.
4. You will likely be a caregiver, so start preparing for it now.
Caregiving is the life stage that occurs when parents or a spouse become incapacitated, and it’s increasingly recognized as something everyone should plan for financially.
According to a recent Merrill Lynch and Age Wave study, eight in 10 Americans say caregiving is the “new normal” in American families. Yet few are prepared for its costs and complexities, Hutchins told HuffPost, noting that 75 percent of those contributing to the costs of care have not discussed the financial impact of doing so.
“This can have significant impacts on the caregiver’s work trajectory, retirement timing and nest egg,” she said.
With caregiving staring at you from down the road, there is no better time than the present to do some advanced financial planning. First, talk openly with close family before caregiving needs arise. Where would they want to live? Who do they want to handle different aspects of care? What are their medical preferences and desires? How will they pay for health care expenses and caregiving needs? Don’t be afraid to seek professional guidance: When it comes to caregiving, you don’t even know what you don’t know.
5. Take action, however small, toward a financial plan.
Do money worries keep you up at night? Do you live paycheck to paycheck and just can’t manage to get ahead? Do you dream of owning a house one day but can’t figure out how to save for the down payment?
“Hope is not a plan,” said Paul Kelash, vice president of consumer insights for Allianz Life. He advises living “by the A’s ― the Antidote to Anxiety is Action.”
Kelash said that too often, people become paralyzed by financial worry and struggle to even acknowledge that their own poor financial habits could be creating that overwhelming anxiety.
He said Gen Xers seem to suffer the most because their debt level keeps rising and they’re ignoring the long-term effects. According to Allianz Life’s Generations Ahead study, total non-mortgage debt (like credit cards and student loans) has increased 15 percent for Gen Xers since 2014, yet compared to three years ago, significantly more members of this group believe “everything will just work out” when it comes to retirement.
It won’t, Kelash said, unless you take action.
“Just get the ball rolling,” he said. “Start by creating and sticking to a budget, reducing debt, especially high interest rate credit card debt, and starting an emergency fund. Creating a financial plan should be a key goal in 2018.”
6. Understand Social Security filing strategies.
William Meyer, founder and managing principal of Social Security Solutions in Kansas, testified before the U.S. Senate last year that strategy matters when it comes to claiming Social Security benefits. Some people start collecting benefits early, at age 62; others defer collecting until they turn 70, at which point the monthly payments have grown by 8 percent a year.
Meyer told HuffPost that pending retirees need to focus on the cumulative benefits (i.e., adding up all the payouts from a strategy versus just looking at the monthly difference in payouts across different strategies) before they decide when and how to claim benefits. The Social Security Administration cannot and will not give a person advice.
“It is worth conducting detailed research to explore all your options, or hiring an expert so you don’t leave significant money on the table,” he said.
General rule of thumb: The longer you wait, the more you will get. But the longer you wait, the fewer years you will be alive to collect benefits.
Image courtesy of holohololand at FreeDigitalPhotos.net